Getting a Business Loan is easy in most cases. The business owner just needs to fill out an application form with a particular lender to get a business loan. Along with filling out the application form applicants must fulfill the eligibility criteria of that lender. All lenders require similar details through an application form. Of course, different loans have specific forms that you need to fill out if you want to take advantage of a particular type of Business Loan. Whatever the type of Business Loan, all require similar documents, so it would be wise to get more information in advance before applying. In today's era, getting a Business Loan is an extremely easy task. Lenders like Poonawalla Fincorp make it hassle-free and convenient for you.
Business loan application varies from loan to loan and lender to lender. But the information asked in the application form is the same and one must be prepared to answer the following questions once you decide to apply for the loan.
-Why do you need this loan?
-How much amount do you need?
-What other debts do you have, and who are your creditors?
-Personal background
-How much are you paying for your other debts?
Lenders are in the business of lending money and earning a profit on the loan in the form of interest. They require security and stability to reduce their risk. When it is about a Business Loan for a start-up, it is not possible to show past data to prove how well the business is organized. This makes it difficult for startups to get a business loan.
Your Business Loan application should be genuine with all the correct and relevant details and supporting documents. There are some important points you should include in your business loan application to increase your chances of approval so that the lender feels confident about you and approves your loan application. Capital is one of the most important things that any business should have to run smoothly. Budding entrepreneurs have great ideas, which when implemented can create new and impactful businesses. However, most of the time, the only barrier between ideas and starting a business is a lack of capital.
Checklist for Business Loan Application
- Cover letter
A cover letter is a personal business letter that can be addressed to the manager of a financial institution i.e., bank to discuss your loan application required for your enterprise. The letter is a way of requesting your lender to consider your loan application and provide you with suggestions on the same. The letter should also contain the details of your business like what your business is and the field to which it is related.
- Business plan
The first thing you need to do if you want to persuade a lender to give you a Business Loan is to write a business plan.
Lenders will want to know that you are running a reliable business and that you have the necessary knowledge and skills to turn your business into something great. Include absolutely everything with your business, including your goals, competitors, past and projected revenue and expenses, market analysis, and how you intend to grow your company. Show why you are the best person for the job, and when you have completed all that, write an executive summary that will draw the lender into your sight.
To secure a loan, many banks require you to have a sound financial plan that covers your business. It creates an introduction about who you are and what your business is. A business plan should be able to state the goals, mission of the business, and how it will be run to achieve all stated objectives. Remember, a good business plan means that you can convince the lender that the business has the potential to be successful.
It is essential to submit a sound business plan along with the loan application. The submitted application of business plan should include -
-Company Description
-Market analysis
-Complete set of
projected financial statements.
-Profit and loss statement.
-Cash flow and balance sheet.
-Money needed
-Management
Strategies
-Marketing strategies
- Personal credit report
Lenders obtain individual credit reports of applicants as part of the application process. However, to be sure, any lender must obtain their credit reports from all three credit rating agencies before submitting their loan application. Errors in a credit report can deprive you of loan approval. It is also necessary to clear these before starting the application process.
Sometimes your credit report can contain errors and if you are not careful, it can negatively affect your credit score. Therefore, it is always advisable to regularly monitor your business credit and personal credit files. If you see some errors, immediately contact a credit reporting agency to rectify and enhance the score by correcting the discrepancies, otherwise, no loan will be sanctioned by the bank if your credit rating is low.
- Collateral
Listing your available collateral is also an important thing to include in a business application. The list can include stocks and bonds, equipment, home equity, inventory, and receivables. To reduce risk, a lender may, at times, ask the borrower to pledge some asset as collateral. Demonstrate your understanding to your banker. Each collateral listed must be described along with its cost and current market value. It may also be required to provide documentation of the value. So, if you apply for a small Business Loan, be prepared with the documents and paperwork of your collateral. Some lenders like Poonawalla Fincorp offer a Business Loan without asking for collateral. In such a case, all you need to do is keep all your information and documentation ready and apply for a loan.
- Income tax return
Business loans require applicants to submit their personal and business income tax returns for the past three years.
- Legal documents
Depending on the Business Loan requirements a lender may require applicants to submit certain legal documents. Therefore, make sure you have the following documents with you before applying for a small business loan-
-Business license
-Registration details of your business
-Franchise agreement if any
-Article of incorporation
-Copies
of agreements if you have a third party
-Commercial lease
- Loan amount you need
It is particularly important to mention the amount you need as a loan in the loan application. Also, specify how you will use that amount. If you are planning to buy new machinery, it should show the estimated value, including installation value, and then show the balance after calculating the total from the borrowed amount.
- About your team and management
Lenders know that a business completely depends on the people who are working for it along with the business owner. These people include the management team, operations team, and technical team. Along with employees, lenders may also consider an outside consultant who is actively involved with the company.
- Disclosure of other business debt
It is possible that an applicant already has some debt running. A Business Loan schedule lets lenders know the status of any loans that are currently running. A business loan schedule will also display outstanding loans and loan amounts. It also outlines monthly payments to the borrower along with interest and payment dates. Therefore, business leaders need to know this before lending to business owners/applicants who already have other loans. This is also to ensure whether the borrower will be able to make the necessary loan payments.
- Research Your Borrowing Options
To find a lender who will offer you a great deal, you must do a lot of research. Do not fall for offers that look attractive, without doing detailed research. Along with interest rate, consider other things such as processing fees, charges, and level of customer service, before finalizing a lender.
Do’s and Don’ts of Your First Small Business Loan
When applying for your first Small Business Loan, it's important to be aware of the do's and don'ts to increase your chances of loan approval. Following are some key guidelines that you must consider:
Do's:
- Research and Compare Lenders: Explore different lenders and loan options to find the best option for your business needs. Consider multiple factors such as repayment terms, interest rates, fees & charges, and customer reviews.
- Prepare a Solid Business Plan: Your business plan should outline your objectives, financial projections, market analysis, and repayment strategy. A well-prepared plan demonstrates your commitment and enhances your credibility.
- Maintain a Good Credit Score: A strong credit score is crucial for loan approval. Pay your bills on time, reduce existing debt, and manage credit responsibly to improve your creditworthiness.
- Gather Necessary Documents: Be prepared to provide financial statements, bank statements, and other relevant documents. Organize your paperwork beforehand to streamline the application process.
- Demonstrate Financial Stability: Show that your business is financially stable by maintaining accurate accounting records, managing cash flow effectively, and having a positive net income. With this, lenders just want clarity that you can repay your loan on time.
Don'ts:
- Overestimate Your Loan Amount: Determine the exact amount you need and avoid applying for more than you require. Lenders may be skeptical if your loan amount seems unrealistic or unsupported by your business needs.
- Misrepresent Your Financial Information: Be honest and transparent when providing financial data and documents. Lenders may verify the information, and any misrepresentation can lead to denial of the loan or legal consequences.
- Ignore Loan Terms and Conditions: Read and understand all loan terms, including interest rates, repayment schedules, and any associated fees. Failing to review these details can lead to unexpected costs or unfavorable loan terms.
- Neglect Personal Credit: Lenders often consider personal credit history, especially for new businesses. Avoid neglecting personal credit obligations, as it can impact your loan application negatively.
- Rush through the Application: Take your time to complete the loan application accurately and provide all required information. Rushing may result in errors or omissions that could delay or jeopardize the approval process.
Conclusion
Getting a Business Loan from a lender becomes easy when you have proper financial details. Lenders will always want to check your balance sheet, cash flow statement and income statement to find out whether you can repay the loan. This means that if you are not keeping these records, it is time to start as they can help when applying for loans in the future.
FAQs:
- Can I take a loan to start a business?
No, Poonawalla Fincorp does not offer a loan for starting a business. Although you can opt for a Business Loan to expand or upgrade your business.
- Can I get a Business Loan if my business vintage is 1 year?
Your business must have a vintage of minimum of 2 years to be eligible for a Poonawalla Fincorp Business Loan.